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Paola Subacchi says the Chinese currency is nowhere ready to usher in the age of "renminbi diplomacy." Since 2009, China had sought to change the international monetary system to reflect its economic might. In 2015, in a bid to keep China happy, the US Senate finally adopted the long-awaited reforms to give emerging economies a greater say in how the International Monetary Fund is managed. China and other emerging economies demanded more voting rights within the the IMF, saying the IMF and the World Bank - both conceived in 1944 at a conference in Bretton Woods, New Hampshire to manage the post-World War II economy - served only Western interests. Following the reforms the Chinese renminbi was added to the IMF Special Drawing Rights (SDR) Basket in 2015, joining the the elite global reserve currency club alongside the US dollar, the euro, the yen and the British pound. Beijing had fulfilled its ambition to internationalise its currency, hoping to play a bigger role in the global financial system, to reduce its reliance on the dollar and strengthen its political standing. Several financial centres across the globe were vying for the privilege of becoming a hub for the reminbi trade. But so far the renminbi is being used by China "in only about a quarter of its international trade, and its international finance remains dollar-denominated." Despite Beijing's push to extend its currency's global reach, it is a "half-baked" currency. The volume of renminbi-denominated trade across the globe has not gone up, and the renminbi still "trails" other reserve currencies in international finance. The currency is "illiquid and unconvertible outside designated offshore markets" - only Hong Kong and Macau have clearing banks outside of mainland China. "As a result, its weight in international investors’ portfolios is miniscule." The author says, "China’s leaders have never shown any sustained commitment to developing the renminbi as a true alternative to the dollar." Their problem is that the international finance requires that a currency be market-driven. The paradox is that the government seeks to promote renminbi as a desirable reserve currency, while at the same time controlling the flow of cash. Apparently capital controls were imposed to curb China’s seemingly insatiable demand for foreign assets, which had driven up prices for everything from US Treasury bonds to global companies to luxury real estate.In defence of its stock market the Chinese government intervenes when it sees fit. The turbulences between summer 2015 and spring 2016 were the result of China's inability to let the market operate. At the same time it encourages ordinary Chinese to invest in stocks, with the majority of which in the hands of buyers with little education, even less trading experience and whose stock market adventure was funded by borrowing. In May 2015 alone, 12 million new trading accounts were opened. Many small shareholders saw their savings wiped out when their stocks nose dived. The government stepped in as the stock market has become a classic "too big to fail" problem. In this regard, even China "does not expect the age of renminbi diplomacy to arrive anytime soon." Last year, however, China set up the Asian Infrastructure Investment Bank (AIIB) as an alternative to the IMF and the World Bank to finance regional development. To China's delight several European countries, including the UK joined the AIIB, and they hope to give their companies the best opportunity to work and invest in the world’s fastest growing markets. Nevertheless the dollar demise is greatly exaggerated, even if the US "retreats from the world stage" under Trump, "and a multipolar global order emerges." Should the international monetary system be "transformed" and countries were forced to leave the dollar, they would face a dilemma. Of the five global reserve currencies, the dollar is still the most attractive pick in the SDR basket. South Korea and Japan are thought to hold about 80% of their international reserves in dollars. Given their fraught relationship with China, it is hardly thinkable that they would want convert their reserves into renminbi.

The 'Dollar Hegemony' is certainly under threat (and not before time), but if we get no better an alternative than another national currency winning 'exorbitant privilege' we won't be a lot better off.

The global currency should be 'neutral'. and supranational. To be otherwise gives the host nation such an unfair advantage in world trade as to be laughable it were not what we have become accustomed to.

I see America's tendency to use the dollar as an excuse to impose sanctions on (companies from) other countries as the biggest threat to the dollar. There is quite a lot of noise from people who want to replace the dollar. I never heard about something similar when the pound was dominant.

'He who wishes to be obeyed must know how to command'. Niccolo MachiavelliThere is no sign that the USA is in a continuing position to command, so the situation is open to initiatives. To assume that the situation will perpetuate is just complacency and I don't understand it.

A dual axis east/west, Dollar/Renminbi system, if it develops, could survive for a quite a long time and remain stable. ( possibly.)

Sudden change on the other hand could be precipitated by the Fed's inability to back-fill the increasing gap between Stock market prices and corporate real values.

If that gap collapses in a destructive crash , rather than a more controlled correction, the only bail-out option available is likely to be the IMF SDRs. That would bypass the twin axis in a stroke and put into a whole new ballpark.

After the Great Financial Crisis, Zhou Xiaochuan, governor of the Bank of China, explained, ‘the world needs an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies’.

Dr Zhou proposed, instead, the International Monetary Fund’s (IMF) Special Drawing Rights (SDR), the weighted average value of the world’s leading currencies, and American Nobelist C. Fred Bergsten came out in support: “Washington should welcome initiatives put forward over the past year by China to begin a serious discussion of reforming the international monetary system.” Fellow Nobelists Joseph Stieglitz and Robert Mundell added, “The creation of a global currency would restore a needed coherence to the international monetary system, give the IMF a function that would help it to promote stability and be a catalyst for international harmony”.

The IMF made its first SDR loan in 2014 and has began including China’s renminbi in its SDR calculations. In 2016, the World Bank issued its first SDR bonds and Standard Chartered Bank issued the world’s first commercial SDR bonds and the world’s central banks have begun restating their reserves in SDRs. Even if only the BRI countries, which represent forty percent of the world’s economy, trade in SDRs it will be the greatest demonstration of soft power in history.

China’s currency innovations have continued, most recently, with a unique oil futures contract denominated in Chinese yuan but convertible into gold. The fact that it will be traded on the Shanghai Exchange, the world’s largest gold exchange, has not escaped the notice of gold bugs. Is this, they ask, a first step in making the renminbi the first gold backed currency since the U.S. ended its gold guarantee in 1971?

Commenting on a headline in the world’s financial press, ‘China Warns U.S. About Debt Monetization,’ David Graeber speculates in his book, 'ebt, the First 5,000 Years', that China has begun to reduce the United States to the status of a tributary state...